The Rule of Capture is Still Alive in Pennsylvania
By Paul R. Yagelski, Esquire
In Pennsylvania, developers who use hydraulic fracking may rely on pressure differential to drain oil and gas from under another’s property, at least in the absence of a physical invasion.
On April 2, 2018, the Pennsylvania Superior Court rendered a decision in Briggs v. Southwestern Energy Production Company, 184 A.3d 153 (Pa. Super. 2018), holding that the rule of capture does not preclude liability for trespass due to hydraulic fracturing. Hydraulic fracturing may constitute an actionable trespass where subsurface fractures, fracturing fluid and proppant cross boundary lines and extend into the subsurface estate of an adjoining property for which the operator does not have a mineral lease, resulting in the extraction of natural gas from an adjoining landowner’s property. In other words, producers could be sued in trespass where hydraulic fracturing was used but there was no intrusion into the adjoining landowner’s property, where such property was not covered by a lease, and the fracturing resulted in extraction of natural gas from beneath the landowner’s adjoining property. Such a decision, if left to stand, could have a significant impact on the Marcellus Shale/Utica Shale development in Pennsylvania leading, potentially, to significant litigation. The Superior Court decision was, however, appealed to the Pennsylvania Supreme Court, which vacated the Superior Court’s decision and remanded the case.
By way of background, Adam Briggs, Paul Briggs, Joshua Briggs and Sarah Briggs (collectively “Briggs”) own an 11.07 acre parcel of land in Harford Township, Susquehanna County, Pennsylvania. Southwestern Energy Production Company (“Southwestern”) is the lessee of oil and gas rights on a tract of land adjoining the Briggs’ property. Since 2011, Southwestern continuously operated gas wells, known as the Innes Gas Unit and the Folger Gas Unit, on the property adjacent to Briggs’ property. Southwestern engaged in hydraulic fracturing to extract natural gas from the Marcellus Shale formation through wellbores located on the Innes and Folger Gas units. Southwestern did not have an oil and gas lease for the Briggs’ property.
On November 5, 2015, Briggs filed a Complaint against Southwestern, asserting claims of trespass and conversion and requesting punitive damages. Briggs alleged that Southwestern, in its operation of the drilling units located on the adjoining property, unlawfully extracted natural gas from beneath the Briggs’ property. Briggs also alleged that Southwestern’s actions constituted a past and continuing trespass.
Southwestern filed an Answer and New Matter asserting, inter alia, that Briggs’ claims were barred by the rule of capture. Southwestern also filed a counterclaim for declaratory relief, requesting that the trial court confirm that Southwestern did not trespass on Briggs’ property. Southwestern filed a motion for summary judgment and brief in support thereof asserting, inter alia, that Briggs’ trespass claim must fail because Southwestern had not entered Briggs’ property and the rule of capture bars damages for drainage of natural gas due to hydraulic fracturing. Additionally, Southwestern requested summary judgment as to its counterclaim for declaratory judgment. The trial court agreed with Southwestern that, as a matter of law, the rule of capture precluded recovery by Briggs.
On appeal to the Superior Court, Briggs argued that the extraction of natural gas from beneath their property is a trespass, despite the lack of physical intrusion by Southwestern. Briggs pointed to the differences between hydraulic fracturing and the “conventional process of tapping into a pool or reservoir of fluids that flow according only to high and low pressure . . . .” Briggs argued that in the context of conventional oil and gas extraction, the rule of capture is a rule of necessity caused by the inability to determine the ownership of natural gas or oil located in an underground pool. Briggs asserted that natural gas contained in shale formations would remain trapped there forever if not for the “forced extraction” through hydraulic fracturing. According to Briggs, it is possible to measure the source of natural gas obtained through hydraulic fracturing, and therefore, the rule of capture should not apply.
Southwestern argued that it could not be held liable for trespass because it has never entered or drilled any gas wells on Briggs’ property. Southwestern also contended that Briggs’ trespass claim is precluded by the rule of capture. Southwestern asserted that the rule of capture should be applied to natural gas obtained through hydraulic fracturing, which it described as a mechanical method of increasing the permeability of rock, and thus, increasing the amount of oil and gas produced from it.
The Superior Court reviewed the history of the rule of capture as it has been applied in the context of conventional oil and gas extraction. The Superior Court noted that Pennsylvania courts had not yet considered whether subsurface hydraulic fracturing, which extends into an adjoining landowner’s property and results in the withdrawal of natural gas from beneath that property, constitutes an actionable trespass. Based upon its review of the relevant case law and the principles underlying oil and gas extraction, the Superior Court concluded that hydraulic fracturing is distinguishable from conventional methods of oil and gas extraction. Traditionally, the rule of capture assumes that oil and gas originates in subsurface reservoirs or pools, and can migrate freely within the reservoir and across property lines, according to changes in pressure. Unlike oil and gas originating in a common reservoir, natural gas, when trapped in a shale formation, is non-migratory in nature. Shale gas does not merely “escape” to adjoining land absent the application of external force. Instead the shale must be fractured through the process of hydraulic fracturing; only then may the natural gas contained in the shale move freely through the “artificially created channels.”
The Superior Court was not persuaded that a landowner can adequately protect his interest by drilling his own well to prevent drainage to an adjoining property. Hydraulic fracturing is a costly and highly specialized endeavor, and the traditional recourse to “go and do likewise” is not necessarily available for an average landowner.
In light of the distinctions between hydraulic fracturing and conventional gas drilling, the Superior Court held that the rule of capture did not preclude liability for trespass due to hydraulic fracturing. Therefore, hydraulic fracturing may constitute an actionable trespass where subsurface fractures, fracturing fluid and proppant cross boundary lines and extend into the subsurface of adjoining property for which the operator does not have a mineral lease, resulting in the extraction of natural gas from beneath the adjoining landowner’s property.
The Superior Court concluded that Briggs’ allegations were sufficient to raise an issue as to whether there was a trespass, and thus, the entry of summary judgment in favor of Southwestern was premature. It therefore reversed the summary judgment order and remanded the case to the trial court for further proceedings. On remand, Briggs was to be afforded the opportunity to fully develop their trespass claim. Moreover, the Superior Court directed that because the trial court concluded that Briggs’ conversion claim was precluded by the rule of capture, Briggs must also be afforded the opportunity to develop their conversion claim on remand.
On appeal, the Pennsylvania Supreme Court considered whether the rule of capture immunizes an energy developer from liability in trespass, where the developer uses hydraulic fracturing on the property it owns or leases, and such activities allow it to obtain oil and gas that migrates from beneath the surface of another person’s land.
Under the rule of capture, oil and gas are minerals, and while in place they are considered part of the land. See Hamilton v. Foster, 272 Pa. 95, 102, 116 A. 50, 52 (1922). They differ from coal and other substances with a fixed situs in that they are fugacious in nature – meaning they tend to seep or flow across property lines beneath the surface of the earth. See Huntley & Huntley, Inc. v. Borough Council of Oakmont, 600 Pa. 207, 228, 964 A.2d 855, 867 (2009). Such underground movement is known as “drainage.” See Hague v. Wheeler, 157 Pa 324, 327, 27 A. 714, 718 (1893).
Under Pennsylvania law, oil and gas resources are subject to the “rule of capture,” which permits an owner to extract oil and gas even when the extraction depletes a single oil and gas reservoir lying beneath adjoining lands. Mindard Run Oil Co. v. United States Forest Serv., 670 F.3d 236, 2356 (3rd Cir. 2011), Jones v. Forest Oil Co., 194 Pa. 379, 383, 44 A. 174, 175 (1900) (recognizing that oil and gas belong to the surface property owner while they are in his land, but when they migrate to his neighbor’s land, they belong to his neighbor). As such, one of the central questions before the Supreme Court involved how these principles apply where hydraulic fracturing is used to extract oil and gas from subsurface geological formations. In considering the issue, the Supreme Court noted that Plaintiffs did not expressly allege that Southwestern’s activities had caused a physical intrusion into the Plaintiff’s property.
The Supreme Court observed that the Superior Court indicated that the salient litmus test in determining whether the rule of capture applied in a given situation is whether the flow of oil and gas occurs naturally or is artificially induced. Briggs, 184 A.3d at 1162-63 (expressing that the “rule of capture precludes liability for capturing oil or gas drained from a neighboring property whenever such flow occurs solely through the operation of natural agencies in a normal manner as distinguished from artificial means applied to stimulate such flow). In other words, whenever “artificial means,” such as hydraulic fracturing, are used to stimulate the flow of underground resources, the rule of capture does not apply because drainage does not occur through the operation of natural agencies.
The Pennsylvania Supreme Court in addressing the issue noted that all drilling for subsurface fugacious minerals involves the artificial stimulation of the flow of that substance. The mere act of drilling interferes with nature and stimulates the flow of the minerals towards artificially created low pressure areas, most notably, the wellbore. The Court went on to note that it has held that the rule of capture applies although the driller uses further artificial means, such as a pump, to enhance production from a source common to it and the plaintiff – so long as no physical invasion of the Plaintiff’s land occurs. See Jones v. Forest Oil Co., 194 Pa. 379, 384, 44 A. 1074, 1075 (1900) (indicating that, absent physical intrusion, developer may use “all the skill and invention of which man is capable” through appropriate resources from under his own property). Accordingly, the Pennsylvania Supreme Court rejected as a matter of law, the concept that the rule of capture is inapplicable to drilling and hydraulic fracturing that occurs entirely within the developer’s property solely because drainage of natural resources takes place as a direct or indirect result of hydraulic fracturing, or that such drainage stems from less “natural” means then conventional drainage. See Briggs v Southwestern Energy Production Co., 2020 WL 3559 *12 (Pa. January 22, 2020).
As a result of the Pennsylvania Supreme Court’s decision, the rule of capture is applicable in hydraulic fracturing scenarios. In addition, a Plaintiff alleging trespass by invasion of property must aver something more than mere drainage of minerals from the subject property. In short, the rule of capture still stands in Pennsylvania and can be applied to hydraulic fracturing.
If you have questions about your oil and gas rights as a landowner, contact us online or call (412) 338-1124.